The debate over publicizing a bank's problems took a couple more twists Monday as a bank sued an equity analyst for raising what it claims were false alarms about its health, and a federal regulator took the news media to task for stirring public fears.
BankAtlantic Bancorp Inc.'s banking unit sued Ladenburg Thalmann & Co., claiming the analyst Richard X. Bove defamed the Fort Lauderdale, Fla., company in a research report issued last week.
Also Monday, two weeks after the largest thrift failure in history, Office of Thrift Supervision Director John Reich blamed the news media for exacerbating the housing crisis.
Since the IndyMac Bancorp Inc. failure, rumors have swirled about other institutions, and television reporters have "staked out banks on these rogue lists, interviewed customers, and stoked public fears," Mr. Reich said.
"In a time when consumer confidence is already flagging and the general public is skittish and understandably concerned about what their financial futures will hold, this behavior goes beyond irresponsible. It's reprehensible," he told the American Bankers Association during a speech in Orlando. "You cannot scream 'Fire!' in a crowded theater, nor, in my view, should anyone feel free to scream 'Failure!' in a bank lobby. This, in effect, is what happened across America just last week, and it was shameful."
IndyMac depositors, becoming increasingly concerned about the thrift's health, withdrew $1.3 billion in the last few weeks.
Mr. Reich did not get specific, but his reference to "rogue lists" points in Mr. Bove's direction.
BankAtlantic said it is seeking unspecified damages from the analyst and his employer for defamation and negligence stemming from the report, which carried the title "Who Is Next?" and discussed banking companies potentially susceptible to failure. The report was issued in response to the IndyMac shutdown by federal regulators.
In trading the following day, BankAtlantic's stock lost a third of its value.
Still, banking and First Amendment lawyers said the case will be tough to win.
"I think it's a difficult case for the bank," said John F. Cooney, a partner at Venable LLP who litigates constitutional cases.
"All speech is protected unless it's deliberately false," he said. "The bank will have to prove actual malice," which he defined as deliberate or reckless falsification.
If the case went to trial, Mr. Cooney said, the defense would try to prove that Mr. Bove's analysis was correct, and that could lead to board members being deposed about such things as problem loan levels. "It can get ugly in a hurry."
Lawrence G. Walters, a First Amendment lawyer with Weston, Garrou, Walters & Mooney in Altamonte Springs, Fla., agreed with that assessment.
"Defamation claims are always subject to a truth defense, but even statements of opinion are fully protected by the First Amendment," he said. "There is not going to be any liability for a statement of opinion by this analyst."
Though he had not reviewed this particular case, Mr. Walters said, "If this guy had any somewhat reasonable data — it doesn't even have to be accurate, so long as he wasn't trying to hurt this bank … then there is not going to be any liability."
Mr. Bove would not discuss the suit Monday. Paul Caminiti, a Ladenburg Thalmann spokesman, said, "We will defend ourselves against this meritless lawsuit." He said he could not elaborate.
The report did not single out BankAtlantic by name, but it did name BFC Financial Corp., a big investor in BankAtlantic. Alan B. Levan is the chairman of BFC and the chairman and chief executive of BankAtlantic. Last week BankAtlantic blamed the steep drop in its stock price — to below $1 a share at one point — on what it called an erroneous analysis by Mr. Bove.
In an interview Monday, Gene Stearns, a Miami attorney for BankAtlantic, said the case is not simply about the impact on stock price.
"This has nothing to do with stock price — other than to the extent that the cost of capital is tied to reputation," he said.
In a press release, Mr. Levan said the suit, filed in Broward County, Fla., accused Mr. Bove of negligently lumping BankAtlantic into a group of companies thought to be vulnerable to failure.
The report looked only at bank holding companies, not specifically at banking units, Mr. Levan said, and in BankAtlantic's case this led to a series of errors.
The holding company oversees other assets that made Mr. Bove's analysis "nonsensical," Mr. Levan said. "This is simply shocking."
BankAtlantic's ratio of nonperforming loans to total loans is 1.25%, and its ratio of nonperforming loans to capital and reserves is 12.5%, both above regulators' preferred levels, according to the CEO. He offered the figures as "undisputed facts" that show BankAtlantic belongs "nowhere" on a list of banks likely to fail.
"The problem we face is that the indisputable facts are now buried in the sensational headlines Bove and Ladenburg have falsely created — and, for whatever reason, have refused to retract," Mr. Levan said in the release. "Soon the falsehood will be presumed true and the truth false, leading us to regretfully conclude that the only way BankAtlantic can clear its name from this irresponsible defamation — and that is what it is — is in the courthouse."
But John Douglas, a former Federal Deposit Insurance Corp. general counsel who is now a partner in the Atlanta office of Paul, Hastings, Janofsky & Walker LLP, made a point echoed by a number of sources.
"Suits like this tend to be counterproductive," he said. "It just draws a whole lot more attention to it."
A former senior banking regulator said: "Prolonging and protracting this tends to lend credibility — whether it's right or wrong. Just appearing in the news on this is dangerous, because everybody is nervous."
Bert Ely, an industry consultant in Alexandria, Va., who routinely analyzes FDIC data to assess the health of institutions, said policymakers — he singled out Mr. Reich — can't have it both ways. The government releases data about insured institutions in part to help the public make informed decisions, putting their money in sound banks, Mr. Ely said.
"There is something fundamentally hypocritical here," he said. "We want investor discipline, we want depositor discipline, but when it's negative analysis and negative conclusions, you keep those to yourself? Do we want people acting on the information that we the government puts out there or don't we?"